Mutual funds have gained immense popularity in India because of their potential of offering attractive returns. In August 2023, equity fund inflows in India reached a staggering ₹20,245 crores. However, despite choosing the best mutual funds, many investors fail to explore their complete potential due to a lack of skill in analysing mutual funds effectively. To harness the power of mutual funds and maximize their returns, investors must crack the code of selecting the appropriate funds. This article will explore how to choose high-performance mutual fund investments and the factors investors should consider while selecting mutual fund schemes.
How must investors choose mutual fund investments with a high performance rate?
Selecting the right mutual fund is the first step towards achieving an investor’s financial goals. To make informed decisions and ensure that their investments grow, investors should consider the following six key factors:
- Investors must enlist their financial goals and determine their risk tolerance:
Before investing, investors must clearly define their financial goals. Investors can choose the right type of mutual fund by understanding their objectives. Additionally, investors assess their risk tolerance. However, some funds are riskier than others, and investors must invest in funds that align with their risk appetite.
- Investors should check the fund’s expense ratio before investing:
Expense ratio refers to the annual fees and charges levied by the mutual fund company. Lower expense ratios result in higher returns for investors. Investors must compare the expense ratios of different funds in the same category and choose those with lower fees.
- Investors must assess the fund manager’s overall expertise:
The fund manager plays a pivotal role in a mutual fund’s performance. Investors should research the fund manager’s track record and expertise in managing similar funds. A seasoned and skilled manager is more likely to make sound investment decisions.
- Investors should use a mutual fund calculator to check risk-adjusted returns:
Investors must consider risk-adjusted returns and use a mutual fund calculator to evaluate a fund’s performance.
- Investors must research the historical performance of the fund:
Investors must consider the fund’s historical performance over various time frames. They should also analyse the performance of a fund in various market conditions – including during bull and bear market conditions. If a fund has performed consistently over a given time period, investors can rely on it to provide them with good returns.
- Investors must check the fund’s benchmark index and compare it with the fund’s performance:
Each mutual fund is benchmarked against a specific index called the “benchmark index”. Investors must form the habit of comparing a fund’s performance with its benchmark index. Comparing the performance of these funds to their benchmark indices can help investors assess their ability to generate returns.
Investors should analyse their risk-taking ability and regularly monitor their mutual fund investments to increase their returns. They must also diversify their portfolio and read up on market conditions that could affect their returns. Investing is a long-term journey, and staying informed and proactive can help investors spot winning mutual funds every time. Using an SIP calculator can help investors plan their mutual fund investments well in advance.
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